This is interesting for a number of reasons. It is clear that when Rudd and company briefly visited PNG on 14-15 July, the issue of asylum seekers was on the bilateral agenda, albeit not advertised as prominently or publicly as concerns such as the PNG LNG project or the state of PNG's hospitals.

It is also clear that Rudd left PNG without a final deal on the asylum seeker front, and it was only on 19 July, four days after his departure and coincidently also the last day of what had been two continuous weeks of parliamentary debate in the Haus Tambaran (parliament has been adjourned till September), that O'Neill flew to Brisbane to sign the new regional resettlement arrangement between Australia and Papua New Guinea.

The machinations of the discussion surrounding the new asylum seeker arrangement is there for all to see: a proposal was put forth by Rudd and it needed time to be discussed by O'Neill with his coalition partners as dictated by the Alotau Accord, the post-election coalition agreement. Based on the 'spirit of reconciliation, trust and unity', the Alotau Accord requires the prime minister at all times to consult with other leaders of the coalition on major policy changes that may impact the unity and integrity of the government.

The matter was discussed in the PNG cabinet and an agreement was reached by 17 July which formed the basis of a radical counter-proposal. It was then submitted to Canberra where it was consequently accepted by Rudd.

Prime Minister O'Neill has made it no secret since his election in 2012 that he wanted to see a total re-alignment of the Australia's half-a billion dollar a year aid program to support his government's priorities. His demands had continuously been stalled by AusAID officials and Australian diplomats based in Waigani who were advising then Australian PM Gillard.

But with the consent of a reawakened Australian prime minister, O'Neill finally got what he wanted, describing the deal as something 'every (PNG) prime minister in the past has wanted to achieve'.

Notwithstanding what O'Neill and his cabinet may think of the arrangement, there are significant legal, political and social hurdles to overcome.

Despite the Australian political rhetoric, not all is well with this arrangement under current PNG law. The most significant threat comes from Section 42 of the PNG constitution which states that all persons – Papua New Guineans and foreigners (which includes asylum seekers) – have personal liberties. Furthermore, the constitution dictates that the personal liberties of foreigners can only be restricted or restrained by the government if they enter the country illegally.

The crux of this legal issue is that Australia's asylum seekers transplanted to PNG have not consented to entering PNG, and therefore have not broken any PNG laws allowing for their detention and the restriction of their personal liberties. It's a valid argument, and Leader of the Opposition Belden Namah had lodged an initial Supreme Court Summons arguing this point. It was thrown out due to a technicality, but Namah has since announced that he will lodge it again next week – this time correctly.

If Namah's challenge succeeds, as it should, we will see swift movement from O'Neill and his unprecedented majority in parliament to immediately amend Section 42 of the constitution to address the loophole. What complicates the outcome of this challenge now is whether Rudd's strategic media campaign, which proactively informs maritime asylum seekers of their final destination, can be interpreted by the courts as being equivalent to consent. It's another brilliant touch by Rudd.

Politically, O'Neill will face reluctance from affected MPs – limited for now to Manus' two MPs – who will justifiably feel isolated from discussions between Waigani and Canberra. Neither have been genuinely consulted or informed of relevant details, but they will kowtow the arrangement as both are in government.

The only exception will be if new permanent asylum centres are needed to address capacity issues. Processing and resettlement will be the stumbling block here: rural solutions would need the consent of complicated customary landowner groups; and urban solutions would need to take into account urban growth, constituent perceptions, and the questionable nature of many state-owned land titles, some of which already house significant settlements of Papua New Guineans.

Socially, this will become a nightmare for PNG and Australia, in more ways than one. The predominant view in PNG is that Australia is conveniently shirking its responsibilities under international law at the expense of PNG and its people, all in the name of domestic Australian politics. That is a view which is difficult to argue against.

Many Papua New Guineans cannot comprehend why people seeking refuge in Australia are being dumped in PNG. It's breeding a boiling resentment against Australia and the Australian people never before seen by this generation.

This is compounded by the way that Australia's debate about PNG has developed into PNG bashing based on ignorance and false or incomplete information. It has only demonstrated how little Australians know of and understand their closest neighbour. Although the relationship may be strong at the political and institutional level, there is a glaringly obvious void in people-to-people relationships. This needs to be fixed, and quick.

If Section 42 is indeed amended by O'Neill, there will be the added perspective that PNG is bending over backwards to accept Australia's asylum seekers at the expense of our Mama Lo – the Constitution.

Australia is losing considerable relationship capital with the people of PNG over this arrangement. Australia may gain from it in the short term, but the long-term ramifications have not been thoroughly explored. Chinese diplomats can surely see the potential in this scenario to win the hearts and minds of Papua New Guineans away from Australia. Based on what's currently happening, it won't take much.